Mumbai/Chennai, Oct 10 The Reserve Bank of India on Wednesday rejected the merger of Lakshmi Vilas Bank and India Bulls Housing Finance Ltd, months after the bank had sought its approval on May 7.

“The RBI vide their letter dated October 9, 2019, informed that the application for voluntary amalgamation of Indiabulls Housing Finance Ltd and Indiabulls Commercial Credit Ltd with the Lakshmi Vilas Bank (LVB) cannot be approved,” Lakshmi Vilas Bank said in a statement.

The crucial merger was for Indianbulls was to diversify its asset while for Lakshmi Vilas Bank, running in loss for five successive quarters, it was to raise capital to come out of the lending curbs.

The board of directors of the bank on April 5 had approved a scheme of amalgamation with Indiabulls Housing Finance.

The RBI’s rejection of amalgamation comes shortly after it had initiated Prompt Corrective Action (PCA) against the Lakshmi Vilas Bank, owing to high non-performing assets (NPA) and others.

On Sep 28, the bank announced: “The RBI has initiated PCA on account of high net NPA, insufficient capital to risk assets weighted ratio (CRAR, also known as capital adequacy ratio CAR) and common equity tier-1, negative return on assets for two consecutive years and high leverage.”

The PCA comes after the RBI carried out an on-site inspection of the Bank on March 31 under Risk Based Supervision.

According to the bank, the Reserve Bank has advised the RBI on the restrictions imposed and the actions to be taken.

The Lakshmi Vilas Bank said it will report the monthly progress on the RBI directions.

“The PCA is aimed at improving the bank’s performance and will not have any adverse impact on its normal day-today operations, including acceptance/repayment of deposits in the normal course,” the bank said.